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El Libro de La Verdad Vol1
El Libro de La Verdad Vol1
21
IN THE ST
CENTURY
OHIO
ROADMAP
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 2
THE PROJECT
The Fiduciary duty in the 21st century Report concluded that failing Information gleaned from conversations in Ohio, as well as research
to consider long-term investment value drivers, which include on state and federal policies on investments and governance
environmental, social, and governance (ESG) issues, in investment issues, guided our analysis and recommendations.
practice is a failure of fiduciary duty. Despite significant progress,
many investors have yet to fully integrate ESG issues into their The recommendations in this roadmap include that:
investment decision-making processes. We define ESG integration
as the systematic and explicit inclusion of material ESG factors into 1. The Ohio State Treasurer and Treasurers of major metropolitan
investment analysis and investment decisions. areas should publish responsible investment policies that
include consideration of ESG factors.
Following the publication of the initial report, the Principles for 2. Ohio public institutes of higher education, including the Ohio
Responsible Investment (PRI), UNEP FI, and The Generation State University and Ohio University, should establish new, and
Foundation launched a three-year project in January 2016 to support existing, ESG programs, including:
implement the report’s recommendations, including the preparation
a. Creating responsible investment policies for endowments.
of country roadmaps. The roadmaps enable the PRI and UNEP FI
to support national investors and stakeholders, as well as policy b. Establishing programs that embed ESG into investment
makers, in developing and implementing clear and accountable education for the next generation of responsible investors.
policy and practice that embraces the modern interpretation of 3. Public pension funds, and corporate pension funds, should
fiduciary duty. integrate ESG factors into their decision-making, including:
a. Establishing policies that integrate ESG into all fund
The US roadmap, published in October 2016, was developed options.
through extensive consultations and sets out recommendations b. Signing the PRI, or making equivalent public
in seven categories: investor education, corporate reporting, commitments to responsible investment and stewardship
investment consultants, legal advice, stewardship and engagement, principles (if have not already done so).
organisational process and disclosure, and Employee Retirement
Income Security Act (ERISA) plan governance. c. Ensuring trustees have a proper understanding of what
ESG is and what it is not.
The Ohio roadmap seeks to build upon the US roadmap by 4. Mayors should join Climate Mayors and local entities should
showcasing responsible investment efforts and best practices at join We Are Still In. These coalitions aim to to hold climate
the state level and by making additional recommendations. It draws warming to well below 2ºC, to help transition to a clean energy
on interviews with stakeholders in Ohio, including with investment economy, and protect investment portfolios from associated
managers and asset owners who already integrate ESG factors material risk.
into their decision making, and some who are at the early stages
of establishing an ESG practice or are still in the research phrase.
We also spoke to representatives from both the public and private
PROJECT STEERING COMMITTEE
sectors to fully represent the state of play in Ohio.
• Peter Knight, Retired Partner, Generation Investment
Currently, the PRI has only two signatories that have their Management
headquarters in Ohio, although several more have a presence in • Fiona Reynolds, Managing Director, PRI
the state. This is compared with more than 90 signatories with • Nick Robins, Co-Director, UNEP Inquiry into a Sustainable
their headquarters in New York, 65 in California, and 15 in Illinois. Financial System
Despite the relatively small number of signatories in Ohio, we found
that the momentum around ESG integration is growing in the state. • Eric Usher, Head, UNEP Finance Initiative
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 3
WHAT IS RESPONSIBLE
INVESTMENT?
The PRI defines responsible investment as an approach to investing that aims
to incorporate ESG factors into investment decisions, to better manage risk and
generate sustainable, long-term returns.
INTRODUCTION
Asset management firms that are newer to ESG issues may be The recommendations will support national stakeholders in
starting their programs due to a perceived business opportunity implementing clear and accountable policies and practices
or recognition of the materiality of ESG factors to investment that clarify investors’ duties with regards to ESG factors.
performance. As with other firms in the US that have an The roadmap also sets the US capital market in a broader
international client base, Ohio organizations noted that European international context, as regulators and investors respond to a
asset owners often pave the way for ESG integration. There has rapidly changing investing environment.
also been a recent uptick in ESG questions listed on requests for
proposals from investment consultants.
A good illustration of this is found at Bloomberg, where millennial
Interviewed stakeholders also stated that they expect the next employees are the highest participants in its ESG fund newly added
generation of investors to bring about change by increasing demand to its 401(k) plan4.
for ESG integration. Several studies demonstrate millennials’ strong
interest in sustainable investing. For example, a study by Morgan
Stanley Research2 found that millennials are twice as likely to have
targeted investments than the total population, and Schroders3
found that millennials place far greater emphasis on ESG factors
than investors above the age of 36.
1 https://www.mercy.com/about-us/corporate-responsibility/environmental-social-governance
2 Millennials Drive Growth in Sustainable Investing: https://www.morganstanley.com/ideas/sustainable-socially-responsible-investing-millennials-drive-growth
3 Schroders Global Investor Survey 2016: ESG, Millennials put greater importance on ESG factors: http://www.schroders.com/en/media-relations/newsroom/all_news_releases/schroders-global-
investor-study-2016-millennials-put-greater-importance-on-esg-factors/
4 Millennials embrace ESG option in Bloomberg’s 401(k) plan: http://www.pionline.com/article/20180207/ONLINE/180209884/millennials-embrace-esg-option-in-bloombergs-401k-plan
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 5
5 Do Fiduciary Duties of Pension Funds Hinder Socially Responsible Investment?, By Benjamin J. Richardson: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=970236
6 Impact Investing Under Ohio’s Prudent Investor Act, By Casey Clark, Esq. and Andy Kirkpatrick, Esq.: https://www.glenmede.com/files/impact-investing-probate-law-journal-ohio.pdf
7 https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-27146.pdf
8 Financial performance of ESG integration in US investing, PRI: https://www.unpri.org/download?ac=4218
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 6
ESG materiality
A 2015 meta-study by Deutsche Asset & Wealth Management
and the University of Hamburg analyzed 60 review studies
and 2,250 unique primary studies and found that 62.6%
of the studies revealed a positive correlation between ESG
investing and financial performance9. Further, a 2017 Boston
Consulting Group analysis of more than 300 companies found
that organizations with higher ESG performance have higher
valuation multiples and margins10.
9 ESG & Corporate Financial Performance: Mapping the global landscape. Deutsche Asset & Wealth Management: https://institutional.dws.com/content/_media/K15090_Academic_Insights_UK_
EMEA_RZ_Online_151201_Final_(2).pdf
10 Total Societal Impact: A new lens for strategy. Boston Consulting Group: https://www.bcg.com/publications/2017/total-societal-impact-new-lens-strategy.aspx
11 Financial performance of ESG integration in US investing, PRI: https://www.unpri.org/download?ac=4218
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 7
RECOMMENDATIONS
1. TREASURER OFFICES
The Ohio State Treasurer and Treasurers of major metropolitan areas should publish responsible investment policies
that include consideration of ESG factors.
The Office of the Ohio Treasurer oversees a portfolio of more than In Chicago, City Treasurer Kurt Summers championed an initiative
$21.5bn12. While the state does not have a responsible investment to enable the city’s $7bn portfolio to adopt an ESG approach,
policy, it is leading the way when it comes to transparency commit to a carbon-neutral portfolio by 2020, and become a
regarding its investments. In 2014, the Treasurer established PRI signatory16. The Treasurer noted that he sees the move as
OhioCheckbook.com to ensure the state and local entities are “enhancing our ability to fulfil our fiduciary responsibility17.” As of
held accountable for over $621bn in expenditures. This led to May 2018, the proposal is pending before City Council. The PRI
Ohio jumping from 46th place to number one in US PIRG’s annual strongly supports these efforts18.
ranking of states’ disclosure regarding their spending13. Disclosure
is a start, but it is only one component of a holistic approach to
responsible investment. We encourage the state to continue its
transparency efforts. Also, the Ohio Treasurer should consider
establishing a responsible investment policy which includes the
disclosure of ESG factors.
2. UNIVERSITIES
Ohio public institutes of higher education, including the Ohio State University and Ohio University, should establish
new, and support existing, ESG programs, including:
Creating responsible investment policies for endowments.
Establishing programs that embed ESG into investment education for the next generation of responsible investors.
On college campuses across the US, students are leading fossil fuel At the start of the program, SAIC student faculty advisor Ana
divestment campaigns. The Undergraduate Student Government Rosado Feger said, “As far as we know, we are the first University
general assembly at the Ohio State University (OSU), one of the to have both a fixed-income student investment group and an
largest universities in the country, passed a resolution in 2017 equity-based income student group managing ESG portfolios. It’s a
in support of divesting from the top-200 fossil fuel companies19. change in philosophy when it comes to investing. What we’ve seen
The student Senate at the Ohio University (OU) passed a similar from the research is we may not see abnormal high returns, but we
resolution in 2017. We note, however, that ESG integration does not expect to demonstrate that the ESG model portfolio will get steadier
necessarily involve negative screening or the sacrifice of financial returns over time. It really changes the mindset to a focus on the
returns. It is rather a holistic approach that provides investors with longer term22.”
an expanded tool-set.
The university at large does not have a responsible investment
Rather than focus on divestment or negative screening, OU has policy, but that could be a natural next step. We recommend that
established an innovative, student-led initiative, with faculty universities create endowment policies that integrate ESG factors
advisors, on ESG integration. In 2011, the school created a into investment decisions. Schools can look to public universities
comprehensive sustainability plan to ensure it becomes carbon in the country – the University of California and the University of
neutral by 207520. One of the benchmarks in the plan was “to Maryland – that have committed to the PRI’s principles as models.
assess endowment investments in sustainable corporations and
entities and recommend strategies for increasing investment in One barrier to additional schools implementing similar programs
these corporations and entities21.” As a result, the university’s is the cost associated with ESG company scoring. Financial data
board opted to create a pilot program led by students. The providers such as MSCI, FTSE Russell and Bloomberg provide high-
school allocated $4m for ESG investments as prescribed by the quality ESG data at scale, and while costs continue to come down,
Sustainable Investing Advisory Committee (SAIC). schools may have limited funding for such services. Further, the
natural transition of students graduating, and schools getting new
After the SAIC developed its initial guidelines that specified which board members or presidents, can hinder long-term policy making.
ESG issues are relevant to the campus, the undergraduate business
school investment groups – the Fixed Income Management Group Nonetheless, given the interest in and commitment to responsible
and the Student Equity Management Group (OSEMG) – were each investment by the next generation, other universities should
tasked with creating $2m ESG portfolios in addition to $2m for consider establishing programs similar to the SAIC. Institutes
traditional ones. Both the equity and fixed income ESG portfolios of higher education in the state could form standards to create
outperformed the traditional investments over the first three initiatives across Ohio’s 62 state schools. Fellowship programs
years. However, it is hard to draw definitive conclusions given the aimed at college students are another tool to educate students
relatively short time period and limited diversification due to the on the value of long-term investing. Heartland Capital Strategies,
portfolio size. a responsible investment organization founded by labor unions in
Pittsburgh, recently launched the Labor Capital Fellowship program
at Georgetown University, which is aimed at mobilizing the next
generation of responsible investors23.
19 https://usg.osu.edu/posts/documents/doc_11292017_22103440.pdf
20 Ohio University Sustainability Plan, June 2011: https://www.ohio.edu/pacsp/documents/sustainability_plan_final_reader_no_bottom_border.pdf
21 https://www.ohio.edu/sustainability/upload/SIAC-Case-Study-2.pdf
22 https://www.ohio.edu/compass/stories/13-14/5/2014-sustainable-investments.cfm
23 http://lwp.georgetown.edu/wp-content/uploads/LCS-Internship-2018-Information-Sheet.pdf
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 9
Source: http://www.orsc.org/Assets/Reports/1088.pdf
With $109bn in assets, OPERS is the 12th largest public retirement not. There are many resources available to assist with education,
system and 15th largest retirement system in the country. In including external investment consultants, internal resources of the
addition to its membership of the ISG, OPERS has its own Ohio fund and the PRI Academy. The latter has developed courses that
Diversity initiative and individually engages companies that do not includes content from leading international experts, real life and
have females on the boards of Ohio companies. In early 2018, the hypothetical case studies, and financial modelling. The PRI can offer
Ohio House of Representatives introduced a resolution to encourage trustee training courses for a reduced cost on the condition that
equitable and diverse gender representation on the boards and in funds’ boards commit to completing the course.
senior management of Ohio companies and institutions24.
We recommend that public funds integrate ESG into all fund
The resolution cites a report25 from Catalyst, a non-profit promoting options. In addition, Ohio public employees that have a member-
women at work, and states that it “found that three or more women directed investment option as part of their retirement plan could be
serving on a corporate board substantially changes boardroom provided with an opportunity to incorporate sustainability-labelled
dynamics, enhances the likelihood that women’s voices and funds into their benefits. The retirement program for federal
ideas are heard, and creates a critical mass of women that can employees – the Thrift Savings Plan – does not currently have an
lead to better financial performance.” The resolution goes on ESG fund option. However, in the past, Congress has introduced
to say that “Ohio has a significant stake in promoting equitable legislation that would institute a “corporate responsibility index”
and diverse gender representation in the public, private, and as an option for beneficiaries30. This change would offer plan
nonprofit leadership ranks of Ohio companies, institutions, and participants a different investment choice that could help minimize
state and local government26.” These efforts are a welcome step risks associated with ESG factors and generate returns.
for promoting and encouraging board diversity. At the federal level,
lawmakers have also encouraged the Securities and Exchange
Commission to strengthen board diversity polices27.
24 https://openstates.org/oh/bills/132/HCR23/
25 http://www.catalyst.org/knowledge/women-corporate-boards-globally
26 http://search-prod.lis.state.oh.us/solarapi/v1/general_assembly_132/resolutions/hcr23/IN/00?format=pdf
27 Congressional Lawmakers Push SEC Chairman to Focus on Board Diversity Disclosure: https://corpgov.law.harvard.edu/2017/07/06/congressional-lawmakers-push-sec-chairman-to-focus-on-
board-diversity-disclosure/
28 https://www.lsc.ohio.gov/documents/gaDocuments/127ga/hb0151in.htm
29 Pension Funds Respond to House Request on Iran: http://www.ohiomfg.com/communities/leadership/pension-funds-respond-to-house-request-on-iran
30 https://www.congress.gov/bill/113th-congress/house-bill/3563
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 11
We Are Still In is a movement across the United States with 2,700 Climate Mayors is a network of US mayors “working together to
signatories, including businesses, investors, universities, cities and demonstrate leadership on climate change through meaningful
counties, states and tribes, and religious organizations that declare actions in their communities, and to express and build political will
they are ‘staying in’ the Paris climate agreement, regardless for effective federal and global policy action32.”
of federal policy. Created in June 2017, the group’s members
represent nearly $6.2 trillion of the US economy. Several non-profit In the state, the mayors of Amesville, Athens, Bexley, Cincinnati,
and philanthropic organizations such as Bloomberg Philanthropies, Cleveland, Columbus, Gambier, Lakewood, and Toledo have
CDP, Ceres, and the Sierra Club are also involved in the initiative. In committed to uphold the Paris Agreement goals in their respective
2018, We Are Still In plans to turn the commitment into action by cities. In addition, Cincinnati has committed, but has not yet
ensuring members set targets and increase them every five years, contributed data, to the Global Covenant of Mayors for Climate
as national governments agreed to in Paris31. and Energy, an alliance of 7,400 cities and local governments
around the world working “to organize and mobilize cities and
Ohio counts 46 businesses and investors, cities and counties, and local governments to be active contributors to a global climate
universities as signatories as of May 2018. Ohio mayors have taken solution33.”
the lead in climate commitment through two initiatives: Climate
Mayors and the Global Covenant of Mayors for Climate and Energy.
AW Bernard, Inc. RiskSOURCE Clark Theders Case Western University Ohio Wesleyan University Cincinnati
B.E.S.T. Rust Belt Riders Cleveland State University Ohio University City of Kent
ChangeWorks of Heartland Sage Sustainable Electronics Denison University The College of Wooster Lucas County
Cleveland Institute of Art Saucy Brew Works John Carroll University University of Dayton Oberlin, OH
Sears-Swetland Family
GARP LLC Kenyon College Wittenberg University Shaker Heights
Foundation
31 https://www.wearestillin.com/
32 http://climatemayors.org/
33 https://www.globalcovenantofmayors.org/cities/cincinnati/
FIDUCIARY DUTY IN THE 21ST CENTURY - OHIO ROADMAP 12
CREDITS
Prepared by: Jenny Waits, Will Martindale and Colleen Orr. Edited by: Mark Nicholls